The Inefficient Market Hypothesis

The efficient-market hypothesis (EMH) is the idea that there are no hundred-dollar bills lying on the sidewalk because someone smarter than you would have picked them up by now. The EMH is a good tool for most people.

If you’re smart enough then you should reverse this advice into “There are hundred-dollar bills lying on the sidewalk”. If you are a genius then you should reverse it to the extreme. “There are hundred-dollar bills[1] lying around all over the place.”

Hundred-dollar bills lying on the sidewalk are called “alpha”. Alpha is a tautologically self-keeping secret. You can’t read about it in books. You can’t find it on blogs[2]. You will never be taught about it in school. “You can only find out about [alpha] if you go looking for it and you’ll only go looking for it if you already know it exists.”

Where should you look?


A system is only as secure as its weakest link. Cracking a system tends to happen on an overlooked layer of abstraction[3].

  • It’s easier to install a keylogger than to break a good cryptographic protocol.

  • It’s easier to disassemble a computer and read the hard drive directly[4] than to crack someone’s password.

The best attacks (those requiring the least work) happen on an separate dimension of orthogonality entirely.

  • The easiest way to talk to someone powerful is just to call zir company and ask by first name[5].

Won’t this technique stop working now that Tim Ferris has published it in a bestselling book? Not necessarily. Quantum mechanics has been public knowledge for decades yet most people can’t do it. The hard part of pickpocketing isn’t finding pockets to pick.

Perhaps you don’t need to talk to anyone rich and powerful. That is a good problem to have.

I think you should find a problem that’s easy for you to solve. Optimizing in solution-space is familiar and straightforward, but you can make enormous gains playing around in problem-space.

What Startups Are Really Like by Paul Graham

Problem-space tends to have higher dimensionality than solution space.

Case study

According to Joel Spolsky, the best programmers have the ability “to think in abstractions, and, most importantly, to view a problem at several levels of abstraction simultaneously.” Also according to Joel Spolsky, a business is an “abstraction [that] exists solely to create the illusion that the daily activities of a programmer (design and writing code, checking in code, debugging, etc.) are all that it takes to create software products and bring them to market.”

The ideal programmer employee is someone who can see all the way down to the level of bits, yet can’t raise zir head high enough to manipulate the financial machinery of venture capital.

Homework assignment: How can you harvest alpha from this local equilibrium?

How to tell when you get it right

Alpha often feels like a magic trick. You know the phrase “A magician never reveals his secrets”? Magic secrets are not secret. The Magician’s Oath is not real. David Copperfield patents his inventions[6]. You can look them up in a public government registry. You don’t because magical secrets are boring. Disappointingly so.

Magicians cheat. The purest alpha should feel like cheating too. The greatest compliment you can receive about your alpha source isn’t “You’re a genius.” It’s “That shouldn’t be possible. I’m disillusioned to live in a world is so inefficient.”

Of course, you should never hear either response because you should never flaunt these discoveries in the first place.

  1. ↩︎

    A month ago I offered to put Westerners in touch with an N95 mask exporter in China. Only two readers took the effort to message me about it. One of them couldn’t be bothered to use WeChat.

  2. ↩︎

    Actually, I did find alpha on a blog post once. The tutorial has since been taken down.

  3. ↩︎
  4. ↩︎

    Most computers are not encrypted. Professional software engineers are consistenly surprised by my ability to recover files from a broken laptop without their login information.

  5. ↩︎

    Tim Ferris claims this works. I am inclined to believe him based on the guests who have attended his podcast.

  6. ↩︎

    Edit: I can only find one patent invented by David Copperfield, patent number 90171779358477. Most of his patentable illusions seem to be invented by other people.